Directorate of Enforcement Vs HI-Tech Mercantile India Pvt Ltd & Ors. & Ors. (Delhi High Court)
The Delhi High Court considered appeals arising from the judgment of the learned Single Judge which had quashed the Directorate of Enforcement’s Provisional Attachment Order (PAO) and consequential proceedings under the Prevention of Money Laundering Act, 2002 (PMLA), concerning the Chotia Coal Block allocated to M/s Prakash Industries Limited.
The coal block had been allocated on 04.09.2003. The allocation was subsequently cancelled by the Supreme Court in Manohar Lal Sharma v. Union of India. CBI had instituted two sets of proceedings. The first FIR concerned, inter alia, post-allocation diversion and related financial gains and was quashed by the High Court. The second FIR was confined to alleged fraudulent acts leading to the coal-block allocation itself. On the basis of the second FIR, the ED initiated PMLA proceedings and attached assets of approximately Rs. 227 crore.
The learned Single Judge had held that the allocation of a coal block could not itself be treated as property or proceeds of crime and that the second chargesheet was confined to events preceding the allocation. The ED challenged that conclusion.
The Division Bench first held that the appeal was maintainable because the writ petition principally challenged the PAO, an executive action under Section 5 of the PMLA, and the consequential proceedings. The proceedings were therefore within the original writ jurisdiction under Article 226 rather than merely supervisory jurisdiction under Article 227.
On the substantive issue, the Division Bench held that the learned Single Judge had framed the central question incorrectly. The proper inquiry was whether the allocation letter constituted “property” under Section 2(1)(v) of the PMLA and whether it was subsequently utilised to derive financial gains constituting “proceeds of crime” under Section 2(1)(u).
The Court adopted a broad understanding of “property”, noting that Section 2(1)(v) encompasses corporeal and incorporeal, tangible and intangible assets, including instruments evidencing title or interest. An allocation letter conferring a valuable right to obtain a mining lease and extract coal could therefore fall within the statutory conception of property when obtained through alleged criminal activity and subsequently utilised for economic gain.
The Court further held that the financial benefit arising from the extraction and sale of coal pursuant to the fraudulently obtained allocation could constitute proceeds of crime. The offence of money laundering under Section 3 was treated as an independent and continuing offence concerning processes or activities connected with proceeds of crime, including possession, acquisition, use, concealment and projection as untainted property.
Importantly, the Court rejected the contention that expenditure, taxes, duties, mining costs or other outgoings could simply be netted against the alleged proceeds of crime. According to the Court, the PMLA focuses upon property derived from criminal activity and its subsequent handling, rather than upon whether the accused ultimately made a net profit or suffered a financial loss.
The Court also upheld the ED’s power to attach the value of the proceeds of crime. The ED had quantified the value of coal extracted during 2006-07 to 2014-15 at approximately Rs. 951.77 crore. The Court held that, once the ED established a prima facie nexus between the scheduled offence, proceeds of crime and the reasons to believe required under Section 5, the burden shifted to PIL to establish that the property was untainted.
The Court rejected the argument that 04.09.2003 operated as a cut-off date restricting the ED’s PMLA investigation. The report/complaint contemplated by the first proviso to Section 5(1) operates as a statutory gateway for initiating attachment proceedings; it does not necessarily restrict the subsequent scope of the ED’s inquiry or the period over which proceeds of crime may be traced.
Key Findings
LPA maintainable: The challenge to the PAO was essentially a challenge to executive action under Article 226.
